09-11-2020

by Paulo Valois Pires, Schmidt, Valois, Miranda, Ferreira & Agel

A Q&A guide to oil and gas regulation in Brazil.

The Q&A gives a high level overview of the domestic oil and gas sector, rights to oil and gas, health safety and the environment, sale and trade in oil and gas, tax and enforcement of regulation. It covers transfer of rights; transportation by pipeline; environmental impact assessments; decommissioning; waste regulations and proposals for reform.

Domestic sector

  1. What is the role of the domestic oil sector in your jurisdiction?

Domestic production

According to figures from the Petroleum Agency’s (Agência Nacional de Petróleo, Gás Natural e Biocombustíveis) (ANP) May 2020 monthly newsletter, oil production has reached an average of 2.7 million barrels of oil per day, with offshore production representing 96.5% of total output. Pre-salt production represents 67.8% of total domestic hydrocarbon production.

Petrobras is by far the largest oil producer in Brazil, with Petrobras fields responsible for 94.9% of total oil and natural gas produced, although the production of other oil companies is growing fast with the opening up of new opportunities.

To date, the role of shale oil is immaterial due to current restrictions on fracking activities.

Oil imports/exports market

Brazil is a net importer of gasoline, diesel, liquefied petroleum gas, and other oil by-products. In 2019, Brazil imported a total of 61.1 million barrels of oil. Imports mainly come from:

  • Saudi Arabia (24.5 million barrels).
  • The US (12.8 million barrels).
  • Algeria (15.8 million barrels).

Exports of crude oil have reached a historical high in 2019, with 427.9 million barrels being exported. The main export destinations of Brazilian crude oil are:

  • The Asia-Pacific region (299.7 million barrels).
  • North America (60 million barrels).

The principal importing country of Brazilian oil is China (269.6 million barrels).

In 2019, Brazil imported 34.2 million cubic metres and exported 13.7 million cubic metres of oil by-products.

There are no restrictions on the export of crude oil or import of oil by-products.

Domestic market structure

The Brazilian energy matrix is diverse and the importance of oil and gas is growing in the country. According to the Power Regulatory Agency’s (Agência Nacional de Energia Elétrica) (ANEEL) website, oil and gas sources represent approximately 14.6% of the country’s energy mix, which is still relatively low compared to hydropower, which accounts for 62.53% of the total energy generation.

In it 2018 Oil and Natural Gas Resources and Reserves Bulletin, the ANP stated that Brazilian domestic oil reserves were estimated to be 3.4 billion cubic metres. The total proven reserves amounted to 2 billion cubic metres, of which 1.9 billion cubic metres are onshore, and 86 million cubic metres are offshore.

Domestic natural gas reserves amounted to 594.9 billion cubic metres. The total proven reserves amounted to 364.5 billion cubic metres, of which 69.8 billion cubic metres are onshore and 294.6 billion cubic metres are offshore.

Government policy objectives

The Petroleum Law (Law 9,478/97) describes the government’s policy objectives for the rational use of the country’s energy resources. The objectives include:

  • Preserving the nation’s and consumers’ interests.
  • Fostering the expansion of energy resources.
  • Protecting the environment.
  • Ensuring the supply of oil by-products nationwide.
  • Increasing the country’s international competitiveness.

Current market trends

Petrobras divestment programme. In November 2019, Petrobras announced its 2020-2024 investment plan, with a new budget of about USD75.7 billion, of which 84.94% is allocated to exploration and production, 11.1% to refining and gas, and 3.96% to other areas.

Despite the crisis, Petrobras has continued with its divestment procedure of certain upstream, midstream, and downstream assets, which has opened up new opportunities for foreign investment.

Petrobras and oil companies have focused on their core activities and projects, and divesting in ancillary projects, such as onshore and shallow waters assets. This has enabled them to reduce expenses while generating income and has opened up project opportunities for new small independent players.

Petrobras is estimating that it will gain between USD20 billion and USD30 billion from the sale of assets in 2020-2024. In 2019, the company divested a total of USD21.3 billion in assets. These sales included:

  • 30% of its participating interest in BR Distribuidora, a listed company in charge of Petrobras’ retail business, reducing its participation from 70% to about 40%.
  • 90% of its participating interest in Transportadora Associada de Gás (TAG), a gas pipeline company.

Petrobras’ ongoing divestment processes include the following:

  • The sale of refineries by agreement with the Administrative Council of Economic Defense (CADE).
  • The sale of its participating interest in BSBios, the country’s largest biodiesel producer.
  • The sale of its remaining participation in TAG (the bidding phase started in March 2020).
  • The sale of 51% of its participating interest in Gaspetro, the Petrobras gas holding, which has participating interests in several local distribution companies.
  • The divestment of power plants.
  • The sale of non-core onshore and offshore fields, including the fields of Papa-terra (Campos Basin), Merluza and Lagosta (Santos Basin), Manati (Camamu Basin), Espada, Curimã, Xaréu and Atum (Ceará Basin), and Anambé, Arapaçu, Cidade de São Miguel dos Campos, Furado, Paru, Pilar and São Miguel dos Campos (state of Alagoas).

Petroleum agency’s bidding rounds. On 6 November 2019, the ANP held the “Production Sharing Bidding Round” for surplus volumes exceeding five billion barrels. Of the four areas offered in the Santos Basin, the areas acquired were:

  • Itapu, by a consortium formed by Petrobras (90%), CNOOC (5%) and CNODC (5%).
  • Búzios, by Petrobras.

The total signature bonus was BRL69.96 billion.

There were no offers for the Atapu and Sépia areas. This lack of interest illustrates the legal uncertainties arising from the production sharing regime.

The attractiveness of Brazil’s offshore upstream rounds has decreased due to the drop in oil prices. This downturn resulted in the suspension of the “Brazil Round 17” for exploratory blocks under the concession regime.

Despite the market environment, the ANP has kept the first cycle of the “Permanent Offer”, which consists of the continuous offer of:

  • Fields returned (or in the process of being returned).
  • Exploratory blocks offered in previous tenders that were not acquired or returned to the agency.

Effects of the COVID-19 pandemic on the oil industry. Increase in the offer combined with a low demand for oil from countries in quarantine has made international oil prices drop to record-breaking lows at the start of 2020.

Like many other oil-producing countries, Brazil has been deeply affected by the 2019 novel coronavirus disease (COVID-19) pandemic. This has led oil companies operating in Brazil to reassess their plans for the foreseeable future. Projects with low profitability are more likely to lose strength due to the devaluation of oil.

The impact of the COVID-19 pandemic has also reduced the attractiveness of specific ongoing divestment processes. This is exemplified by Petrobras’ current strategic plan, counting on positive net present value (NPV), with Brent spinning between USD45 and USD50 per barrel. According to Petrobras, the break-even of the pre-salt production development is in the range of USD35 to USD45 per barrel.

The ANP has issued specific resolutions to deal with the current pandemic and has:

  • Extended deadlines under upstream agreements.
  • Loosened contractual commitments at the exploration and production stages.
  • Suspended certain obligations regarding demobilisation of operational personnel.

More recently, oil prices have started climbing back up again, although they remain far below their January 2020 levels. However, this will increase the possibility of pursuing new endeavours and projects that were halted during the pandemic.

  1. What is the role of the natural gas sector in your jurisdiction?

Domestic production

According to the ANP’s May 2020 monthly newsletter, gas production has reached an average of 114 million cubic metres per day, 3% higher than in May 2019, with offshore production representing 86% of total output. The pre-salt had an average production of 77.5 million cubic metres per day.

Petrobras’ shale operations are focused on shale deposits located in São Mateus do Sul (state of Paraná), processing a total 1.5 million tons of crude shale in 2019, producing 6.7 thousand tons of shale gas. There are restrictions on shale operations in Brazil.

Natural gas imports/exports

In 2019, Brazilian imports amounted to 9.9 billion cubic metres, with about 68.9% of coming from Bolivia and the remaining 16.5% corresponding to LNG imports mainly from Trinidad and Tobago, the US and Nigeria.

Brazil was not an LNG exporter in 2019.

Domestic market structures

See Question 1, Domestic market structure.

Government policy objectives

One of the main government policy objectives provided under the Petroleum Law is to increase the contribution of natural gas to the Brazilian energy mix.

Current market trends

The Gas to Grow Programme (Gás para Crescer) is an initiative co-ordinated by the Ministry of Mines and Energy (MME) that aims to:

  • Improve the legal and regulatory framework for the natural gas sector in Brazil.
  • Encourage the entry of new players.

There has been a gradual increase in the entry of new players on the market due to the reduction of Petrobras’ role (see Question 1, Current market trends).

Bill No. 6407/2013, which will revoke the current Gas Law, was recently approved by the Chamber of Deputies, is currently under debate in the Senate. It is expected to be approved in 2020. Bill No. 6407/2013 aims to foster the development of gas transportation activities in Brazil through the creation of a friendly market environment for investments in the construction of natural gas transportation system.

Different public agencies are currently reviewing several aspects of the regulatory framework applicable to the natural gas sector. For example, the National Council for Energy Policy (Conselho Nacional de Política Energética) (CNPE) has published Resolution No. 16/2019 establishing guidelines and improving energy policies to foster free competition in the natural gas market.

  1. Are domestic energy requirements met by domestic oil and gas production?

Oil requirements

According to the ANP’s 2020 Statistical Yearbook, in 2019 Brazil needed 61.1 million barrels of oil to meet domestic energy requirements. Last year, the country increased its need for imported oil by 1.7%.

Natural gas requirements

According to ANP’s 2020 Statistical Yearbook, in 2019 Brazil needed 9.9 billion cubic metres to meet domestic energy requirements. Last year, the country reduced its need for imported natural gas by 9.1%.

  1. Are there specific government policies to encourage the exploration and production of unconventional gas or oil?

There are no specific government policies to encourage the exploration and production of unconventional hydrocarbons. Hydraulic fracturing is still a controversial activity in Brazil, and its use has been challenged in court decisions.

Regulation

Regulatory bodies

  1. Who regulates the exploration and production of oil and gas?

Oil

The regulatory authorities for the oil and gas sector are the:

  • ANP.
  • MME.
  • CNPE.

The Federal Government’s interests arising from the production sharing regime are represented by the state-owned company Pré-sal Petróleo SA – PPSA.

Natural gas

See above, Oil.

The regulatory regime

  1. What is the regulatory regime for onshore and offshore oil and gas exploration and production?

There are two main regimes for onshore and offshore oil and gas exploration and production in Brazil:

  • The concession regime regulated by the Petroleum Law.
  • The production sharing regime regulated by Law 12,351/10.

Exploring, developing and producing hydrocarbons can only be performed by companies organised under Brazilian laws, with management and headquarters in Brazil, through either concession agreements or under production sharing regimes.

There is also the onerous assignment regime regulated by Law 12,276/10, under which only Petrobras is granted the right by the federal government to explore and produce hydrocarbons in certain areas without having to go through a bidding procedure.

Enforcement of regulation

  1. What are the regulator’s enforcement powers?

Orders

Under the Petroleum Law, the ANP is empowered to regulate, contract and inspect all economic activities relating to the oil and gas industry. ANP orders are binding and must be followed by all regulated market agents.

Fines and penalties

Law 9,847/1999 sets out the penalties to be imposed by the ANP for non-compliance with the rules applicable to the import, export, marketing, refining, processing, transport, distribution, resale, and storage of oil and natural gas.

ANP Ordinance 234/2003 imposes penalties for breaching the provisions of bidding tender protocols and concession contracts. The penalties include:

  • Fines.
  • Forfeiture.
  • Discarding of seized goods.
  • Cancellation of relevant registrations with the ANP.
  • Suspension of goods supply and operations.
  • Suspension of the right to participate in future bids and to contract with the ANP.
  • Termination of the concession contract.

Other

Any penalties must be imposed in accordance with due process of law, and the entity sanctioned must have the chance to present a full defence.

  1. Is there a right of appeal against the regulator’s decisions?

Decree 2,953/99, which regulates administrative proceedings, provides a right of appeal against the ANP’s decisions to the Board of Directors of the ANP, a panel of five directors. An appeal must be filed within ten days from the date of acknowledgement of the decision. The Board of Directors can grant a stay of execution where the decision could result in irreparable harm.

Under Brazilian laws, decisions from administrative bodies do not constitute res judicata (that is, they are not final). Therefore, the ANP’s decisions can be challenged in court regardless of any final decision issued following administrative proceedings. Court decisions are res judicata.

Rights to oil and gas

Ownership

  1. How are rights to oil and gas held?

The federal government owns oil deposits, natural gas and other fluid hydrocarbons that exist in Brazil, including:

  • Onshore.
  • In territorial waters.
  • On the continental shelf.
  • In the exclusive economic zone.

The ownership of oil and gas is transferred to concessionaires and production sharing agreement contractors at the production measurement point under the concession and production sharing regimes.

Nature of oil and gas rights

  1. What are the key features of the leases, licences or concessions which are issued under the regulatory regime?

Lease/licence/concession terms

The concession and production sharing regimes are divided into two phases: exploration and production. The exploratory phase ends when a declaration of commerciality of the area is presented to the ANP. Under the concession regime, the production phase lasts for 27 years (extendable with approval from the ANP). The maximum contractual term under the production sharing regime is 35 years (Law 12,351/10).

There are local content requirements for the exploration and production phases, which are set out in the tender protocol of a bidding round and may be different for each bidding round. For example, the Tender Protocol of the Permanent Offer imposes the following local content requirements:

  • Onshore concessions:
    • exploration phase: 50%; and
    • production development phase: 50%.
  • Offshore concessions:
    • exploration phase: 18%; and
    • production development phase: well construction: 25%; collection and outflow system: 40%; stationary production unit: 25%.

Oil and gas companies can access raw technical data available from the Exploration and Production Data Bank (Banco de dados de E&P) (BDEP) against payment of standard stamp fees.

ANP Resolution No. 757/2018 regulates the acquisition and processing of upstream data, including seismic. As a rule, geophysical data must be shared with the ANP and remain confidential for ten years (two years for wells data).

Fees

The following fees are due to the government:

  • Signing bonus.
  • Royalties.
  • Special participation (which is extraordinary financial compensation for fields with high production or profitability, calculated through progressive rates that vary according to the location, lifetime of the field, and production volumes).
  • Annual occupation or retention fee.

Landowners are entitled to receive a monthly fee in local currency between 0.5% and 1% of the total hydrocarbon production in the area.

On 21 September 2018, the ANP approved the reduction of the royalties’ rate from 10% to 5% to foster investment in mature fields.

Liability

Under the concession and production sharing regimes, the operator and the consortium members are jointly and severally liable. They must, at their own account and risk, do the following:

  • Make all investments and bear all necessary expenses.
  • Supply all necessary equipment, machinery, personnel, service and proper technology.
  • Assume and fully compensate all losses and damage caused directly or indirectly by the operations and their performance, irrespective of fault, to the ANP, the federal government and third parties.

Restrictions

Decree No. 9,041/2017 regulates Petrobras’ pre-emptive rights to act as operator in the consortia formed for the exploration and production of blocks under the production sharing regime. Under the Decree, Petrobras must express its interest in participating as operator within 30 days from the date of publication of the CNPE’s resolution. Containing the technical and economic parameters of the blocks to be tendered. Petrobras must specify the blocks that is it interested in and its percentage of participating interest (which cannot be less than 30% for the area to operate).

  1. How are rights to explore for and produce oil and gas awarded?

As a rule, concession contracts and production sharing agreements are awarded through public bids promoted by the ANP. However, Law 12,276/10 introduced an exception for the onerous assignment of certain areas from the federal government to Petrobras.

The terms of concession and production sharing contracts are not negotiable. Their drafts are enclosed to each tender protocol published by the ANP, which allows the participation of companies individually or by consortium. Consortium members are bound by a consortium agreement and a joint operating agreement that follows the Association of International Petroleum Negotiators’ model.

Transfer of rights

  1. How are oil and gas rights transferred?

Transfer of rights

The transfer of rights is authorised by both the Pre-salt Law (Law 12,351/2010) and the Petroleum Law. All transfers require prior approval from the MME or the ANP for areas under a production sharing regime agreement or a concession agreement, respectively. Depending on the circumstances of the case, the transfer of rights may also require prior approval of the Brazilian anti-trust authorities.

The assignee must prove that it has the technical expertise and financial capacity to meet the requirements established by the ANP or MME.

Presidential Decree No. 9,355/2018 (Petrobras Decree) was published on 26 April 2018 to establish the rules of governance, transparency, and good practices for the assignment of exploration, development, and production rights in Petrobras’s blocks.

In July 2018, Petrobras revised the Petrobras Bidding Procedures and Contract Regulations (RLCP), which sets out the general rules for the acquisition of goods and services from Petrobras.

The change of control of oil and gas operators does not require prior approval from the ANP. However, notice must be made to the ANP within 30 days from the date of the transfer of control.

Restrictions on transfer

The rights granted to Petrobras under the onerous assignment regime cannot be assigned to any third parties.

ANP Resolution No. 785/2019 sets out the rules for a pledge of rights under upstream contracts. The pledge of these rights does not require prior consent from the ANP, but the pledge agreement must be notified to the ANP within 30 days from signing.

Tax

  1. What payments are payable by oil and gas interest holders to the government?

See Question 10, Fees.

  1. What taxes and duties apply on import and export of oil and gas?

Oil and gas exports are exempt from any taxes and duties in Brazil.

The following taxes are levied on oil and gas imports into Brazil:

  • Import duty tax. This is a federal tax and the rate varies in accordance with the customs table published in Decree No. 9,020/2017.
  • Tax on goods, transportation services and communication services. This is a state tax and the rate varies in each state.
  • Contributions to the social integration programme. This is a federal contribution with a rate that varies according to the particular taxable item.
  • Contributions for social security financing. This is a federal contribution with a rate that varies according to the particular taxable item.
  • Contribution of intervention in the economic domain. This is regulated by Law 10,336/01 and is levied on the import of oil and its by-products, natural gas and its by-products, and ethyl alcohol fuel. However, Decree No. 5,060/04 provides that the rates for most by-products and ethyl alcohol fuel are zero, with the exception of gasoline and diesel, which have their aliquots set at BRL100 and BRL50 per cubic metre, respectively.

Transportation by pipeline

  1. What regulatory requirements apply to the construction of oil and gas pipelines?

Oil pipelines

The construction, expansion and operation of oil pipelines must be authorised in advance by the ANP in accordance with the Petroleum Law and ANP Resolution No. 52/2015.

Gas pipelines

The transportation of natural gas can only be performed by companies or consortia organised under Brazilian laws, with their headquarters and administration in the country under the following regimes:

  • Concession (preceded by a bidding process).
  • Authorisation.

To date there have been no concessions for transportation of natural gas issued in Brazil.

Rights to authorisations granted for the construction and operation of gas pipelines before the enactment of the Gas Law (Law 11,909/2009) were ratified by that law. The construction, expansion and operation of new gas pipelines must be submitted to the MME and the ANP in accordance with:

  • Article 56 of the Petroleum Law.
  • The Gas Law.
  • ANP Resolution No. 52/2015.
  • MME Ordinance 94/2012.
  • ANP Resolution No. 42/2012, which sets out the conditions for infrastructure sharing.
  • ANP Resolution No. 44/2009, which sets out the procedure to report incidents to the ANP.
  • ANP Resolution No. 16/2008, which sets out the conditions to commercialise natural gas.

Bill No. 6407/2013 aims to revoke the current concession regime for gas transportation activities, which will be exclusively performed under the authorisation regime.

  1. What regulatory requirements apply to the operation of oil and gas pipelines?

ANP Resolution No. 52/2015 sets out the rules and requirements for the construction, expansion, and operation of oil and gas pipelines.

The operation of oil and gas pipelines must be authorised by the ANP, except for the distribution of piped gas, which fall within the states’ jurisdiction and must be performed by local distribution companies under concession contracts with the relevant states. To obtain an operation authorisation, a company must meet the requirements of the Petroleum Law, namely, be a company established under Brazilian law, with headquarters and management in Brazil (ANP Resolution No. 52/2015).

The ANP monitors the operation of oil and gas pipelines. Gas transportation tariffs are regulated by the ANP. There are no restrictions on foreign ownership of companies that operate oil and gas pipelines.

  1. Is there a system of third party access to pipelines and other infrastructure?

Third party access is regulation by the Petroleum Law and the Gas Law. The ANP Resolutions No. 35/2012 and No. 11/2016 regulate the principle of open access. Under this principle, a transporter must allow non-discriminatory access by third parties to its transportation facilities with adequate remuneration calculated using the criteria established by the ANP, taking into account the exclusivity provisions granted to the owner of the facilities (if applicable).

Currently, third-party access rights do not apply to LNG terminals and production offloading pipelines, although this is likely to change if the Bill No. 6407/2013 is approved by the Brazilian Congress.

Health, safety and the environment

Health and safety

  1. What is the health and safety regime for oil and gas exploration and production, and transportation by pipeline?

Exploration

The main provisions that apply to health and safety for oil and gas activities are set out in:

  • The Federal Constitution.
  • The Labour Code.
  • Law 5,811/1972, which regulates certain features of the work regime applicable to employees in exploration, drilling, production, and refining activities.
  • Ministry of Labour and Employment guidelines.
  • ANP regulations.

Extraction

See above, Exploration.

Transportation

See above, Exploration.

Environmental impact assessments (EIAs)

  1. Is an EIA required before extracting or processing onshore or offshore oil and gas?

Under Resolution No. 01/1986 of the National Environmental Council (Conselho Nacional do Meio Ambiente), the environmental licensing procedure for certain activities deemed to cause significant impact on the environment (such as extracting or processing onshore or offshore oil and gas activities) require an EIA and a corresponding environmental impact report from the concessionaires. These must be approved by the competent environmental authorities.

  1. What are the different stages of the EIA?

The EIA must follow these guidelines:

  • Contemplate all technological and project location alternatives.
  • Identify and assess, on a continuous basis, any environmental impact that may arise from the operations.
  • Define the area affected by the impact.
  • Comply with any suggested government plans and programmes intended to influence the project.

Analysis of the EIA and issue of the preliminary licence usually takes around 12 months to be completed.

Environmental permits

  1. Is there a permit regime for environmental damage or emissions produced during the extraction or processing of oil and gas?

The extraction or processing of oil and gas require three different types of licence:

  • Preliminary licence.
  • Installation licence.
  • Operation licence.

The vast majority of potentially polluting or degrading activities are subject to environmental licensing at the state level, while federal authorities are competent in the specific cases listed in Article 7 of Complementary Law 140/2011. For onshore conventional oil activities, licences must be obtained from the relevant state environmental body (Article 8, Complementary Law 140/201). Licences relating to offshore activities must be obtained from the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) (Law 6,938/81).

These licences define the rules, obligations, conditions and restrictions on the implementation of the project, and any compliance measures to be taken to mitigate and control any environmental impact.

Environmental concerns

  1. Are there any specific government policies and/or incentives aimed at meeting the environmental concerns associated with the exploration and production of oil and gas?

Companies believe that there are not enough modern environmental regulations governing certain activities in the oil and gas economic chain, such as decommissioning and hydraulic fracturing.

There are restrictions on shale operations. For example, the use of fracking for the exploration of shale gas is prohibited.

Waste

  1. What are the regulations on the disposal of waste products resulting from oil or gas extraction or processing?

Under Law 12,305/2010 (which establishes the National Policy for Solid Waste), concessionaires are responsible for the proper disposal of solid waste from oil or gas extraction or processing activities.

Concessionaires must also comply with the National Environmental Council’s Ordinance 313/02, which establishes the National Inventory of Industrial Waste.

Flares and vents

  1. Do regulations apply to the flaring or venting of oil and gas?

Gas flares must be authorised by the ANP under ANP Resolution No. 806/2020. The Ordinance also sets out cases in which ANP authorisation is not necessary.

Decommissioning

  1. What are the decommissioning obligations and liabilities that arise?

Several regulatory and contractual obligations arise from the decommissioning and deactivation of facilities. Under the Petroleum Law, an operator must:

  • Remove any equipment and goods.
  • Indemnify any and all damages arising from exploration and production activities (strict liability).
  • Promote the environmental recovery of the area.

Several ANP regulations govern the procedures and liabilities arising from the guidelines established under the Petroleum Law, including:

  • ANP Resolution No. 17/2015, which regulates the content of the development plan, a document that establishes the procedures to decommission and abandon the concession area.
  • ANP Resolution No. 41/2015, which approves the Technical Regulation of the Subsea Systems Operational Safety Management System.
  • ANP Resolution No. 46/2016, which approves the Operational Safety Regime for the Integrity of Oil and Natural Gas Wells. ANP Resolution No. 817/2020, which provides for decommissioning activities.

Decommissioning activities and associated collateral measures to be conducted by the operator must be approved by the ANP. Operators and other parties to exploration, development, and production contracts are subject to a strict liability regime. The ANP is currently reviewing the rules applicable to decommissioning activities.

Sale and trade

  1. How is trade in oil and gas usually carried out?

Under Article 1,267 of the Brazilian Civil Code, a sale on the oil and gas markets is completed on delivery of the goods to the buyer. Agreements providing for the marketing of natural gas must be registered with the ANP. There are currently no separate wholesale and consumer markets for oil and gas producers and suppliers.

  1. Are oil and gas prices regulated?

The ANP does not regulate oil and gas marketing prices. It does not set maximum and minimum values, or have any requirement for prior authorisation for readjustments.

To date, Petrobras holds 98.2% of Brazil’s total refining capacity and therefore fixes the sale prices of oil by-products from refineries to oil and gas retail distribution companies. Currently, these prices are following the quotations of the international market.

The commercialisation of oil originating from the pre-salt areas attributed to the federal government is regulated by Law 13,679/2018 and MME’s Ordinance 226/2018. Under these regulations, Pré-Sal Petróleo SA (PPSA), a Petrobras subsidiary, is responsible for the commercialisation of the oil share of the federal government that originates from the pre-salt areas, and must use the reference prices set by the ANP to establish the prices of that oil.

Insurance

  1. Are there any insurance requirements that must be met by companies exploring for, producing or transporting oil and gas?

Concessionaires must secure and keep in force insurance as required by any applicable laws or regulations. These insurance policies must cover:

  • Property, personnel and cleaning in the event of accidents.
  • Civil liability for damages to the environment and the federal government’s heritage.

The ANP must be co-insured in the policy (where applicable) and the policies must not impair the ANP’s rights to be fully reimbursed for losses and damage exceeding its indemnification covered by the policy.

Reform

  1. Are there plans for changes to the legal and regulatory framework?

The MME has started implementing the Gas to Grow Programme (Gás para Crescer), with the aim of adapting the natural gas sector to the decreasing participation of Petrobras in certain activities (see Question 2, Current market trends). Additionally, Bill No. 6407/2013, which will revoke the current Gas Law, was approved by the Chamber of Deputies and is currently under debate in the Senate (see Question 2, Current market trends).

Contributor profile

Paulo Valois Pires, Partner – Schmidt, Valois, Miranda, Ferreira & Agel

 

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